Fitch Ratings: Strong Commodity Markets Support APAC Mining Service Issuers Amid Cost Inflation Pressures

(Fitch Ratings-Sydney-22 May 2023)-- APAC mining service issuers’ financial profiles will be supported by their conservative financial policies and strong demand for mining services in Australia and Indonesia, says Fitch Ratings in a new report. This, alongside rise-and-fall provisions in contracts, will help the companies absorb cost inflation and challenges related to labour shortages.

We expect mining service companies’ earnings to benefit from supportive market conditions, with contracts normally volume-based. Mining production volume in Australia should remain strong over the next few years, after a period of investment, including expansion into green energy minerals. We also expect Indonesian coal production to remain resilient, even with rising global energy transition, given the country’s reliance on coal-based power generation.

These market conditions will support the revenue visibility of core mine operation providers, Thiess Group Holdings Pty Ltd (BBB-/Stable), Perenti Global Limited (BB+/Stable) and PT Bukit Makmur Mandiri Utama (BUMA, BB-/Stable), as well as Emeco Holdings Limited’s (BB-/Stable) fleet and fleet-related service operations.

Diversification across commodities is also rising as a key rating driver for mining service peers. In particular, increasing exposure to green energy minerals and reducing exposure to thermal coal production are playing a larger role in improving revenue visibility and access to funding. Operators with the largest exposure to thermal coal, Thiess and BUMA, are seeking to diversify away from this exposure, with Thiess’s MACA acquisition and BUMA’s acquisition of Downer EDI Limited’s (BBB/Negative) Australian mining service operations improving their commodity diversification. (ends)